State of the Union: How to Profit From President Obama's New Clean Energy Challenge

[Editor's Note: Frequent Money Morning contributor Dr. Kent Moors is an advisor to six of the world's Top 10 oil companies and a consultant to some of the world's largest oil-producing nations. He is also the editor of the "Energy Advantage" advisory service.]

In last week's State of the Union address, U.S. President Barack Obama issued a national challenge: Take the 11.5% of the U.S. electricity that emanates from clean-energy sources and boost it to 80% by 2035.

As with any game-changing direction – landing a man on the moon in a decade, bringing an end to the Cold War, curing cancer, or weaning our economy off of coal and crude oil – leaders such as President Obama provide the enticement.

But the market has to figure out how to get it done.

I see three initial questions arising from President Obama having thrown down the "clean energy challenge" gauntlet:

Is it a good idea?

Is it attainable?

How can investors profit?

Let's take a look at – and answer – all three.

Question No. 1: Is this a good idea?

On balance, most people think the clean energy challenge that President Obama issued in last week's State of the Union talk is a very good idea. After all, renewable and alternative energy sources would allow us to emphasize what the United States does best – innovate and create new departures in technology.

It does create some dislocation in those economic sectors that depend upon coal and crude oil – the primary targets of such a move (although clean-coal technology is already becoming an alternative discussed at length in Pennsylvania, West Virginia, Ohio, and other states where "King Coal" still holds considerable sway).

Nonetheless – and this will be the focus of debate on this initial question – the move to a preponderance of clean energy sources will create economic problems in areas where oil and coal are produced.

The social and policy calculus can hardly leave that out of the mix.

In short, there will be considerable politics played here – and for one overriding reason – which is why I drum the following axiom into the heads of my graduate students at the beginning of their education:

Axiom:There are no public decisions made that do not hurt somebody.

That is what the balancing of interests "Inside the Beltway," or in the corridors of a statehouse, are all about. The great Speaker of the House Sam Rayburn said it most colorfully: "It all depends on whose ox is getting gored."

First off, therefore, if the folks in Washington are serious (a big "if"), this will become a protracted political fight, a firestorm of debate and disagreement. There will need to be a clear national will here – one that obliges all concerned to transcend the invective and regionalism.

But let us say that such a will does emerge, that we accept and support moving our power base to "clean" fuels, that we adopt new standards encouraging electric cars, and that we put a premium on renewables and "green" technology.

That leads us to the second question.

Question No. 2: Is it attainable?

Today, if one combines solar, geothermal, wind power, biofuels, hydropower, and biomass (yes, I put algae into this category), along with such niche ideas as tides or even rain power, about 18% of the world's electricity generation is included; for the U.S. it comes to about 11.5%. The goal is to get 80% of our electricity coming from clean energy sources. And the time span is only 25 years. Can we pull it off?

And then there is the other matter: What sources to we actually classify as "clean" energy?

If we include nuclear power in the calculations, the figures would rise to about 27% worldwide and 29% in the United States.

There are countries relying much more on specific non-fossil fuel sources. Iceland, for example, provides 100% of its power needs from geothermal energy (the advantage of having active volcanoes close at hand), while France receives 70% of its electricity from nuclear reactors.

In the United States, however, it looks like we have a long way to go before that 80% figure is even on the horizon.

Increasing the incentives would bring some high-end research into play, and that could improve the picture. But we need to understand up front that, while government grants can fund research and development (R&D), they are far less effective in providing the funds to revise much of the power infrastructure or delivery systems, and largely cannot bring new technology to market.

Some public decisions can set the stage in certain areas.

For example, Houston is embarking on a new grid of power stations to improve the usage of electric cars in the metro area, while decisions in San Diego (buses) and New York City (taxis) are providing alternatives to oil-fueled transportation.

But the primary problems remain – what power can be used and where; who is going to pay for the infrastructure changes; and how the new technology essential for this transition will make it to market.

These elements of the challenge are where the real expenses are going to hit.

Make no mistake; government holds the key to a low-carbon world, but the private sector will have to lead the charge here.

Now the entrepreneurial spirit remains alive and well in America. That is a good thing, because we will need the bulk of it if this energy initiative has any chance of succeeding.

That spirit reference provides a very nice segue into my third overall question about this "bold new clean energy world."

Question No. 3: How can investors make money from it?

Most of the new approaches fueling the spirit necessary to develop clean energy power sources, connect them to grids, provide a realistic market choice among alternatives, keep prices manageable, and improve distribution and energy use will be start-ups and low capitalized companies – many of them private.

That is of little help to the average investor, since these are not publically traded entities.

Nonetheless, there is developing a cadre of companies that combine sufficient market penetration with technological innovations likely to benefit from the initiative.

Some of these I have mentioned previously to the subscribers of my trading services, including:

And General Electric Co. (NYSE: GE), for the new clean-coal technology that I discussed last November in my Oil & Energy Investor newsletter.

The main interests in green renewables, however, remain solar and wind power. On the solar front, I have addressed some major developments in previous issues of the Oil & Energy Investor. Wind power carries some great potential in certain regions in the United States but also finds its front-end leaders in the breakthrough approaches only in the small, micro-cap, private companies.

The exceptions are GE (with its major role in developing new generations of wind turbines) and foreign leaders such as Danish Vestas – look into it through Vestas Wind Systems AS (OTC: VWSYF), Siemens AG (NYSE ADR: SI), or Spanish Gamesa Corporacion Tecnologica SA (OTC: GCTAF).

One thing is certain: As companies take up the challenge, this is going to be a rapidly changing sector.

So there is one other way of tracking developments.

I would suggest following two exchange-traded funds: the Market Vectors Global Alternative Energy ETF (NYSEArca: GEX) and the Powershares Cleantech ETF (NYSEArca: PZD). The tradable shares of the up-and-coming solvent companies will be showing up on the listings of shares, followed by ETFs like these two.

But remember: Rome wasn't built in a day. And neither will the New Age of U.S. energy.

[Editor's Note:Dr. Kent Moors, a regular contributor to Money Morning , is the editor of The Oil & Energy Investor, a newsletter for individual investors, as well as the Energy Advantage advisory service In a career that spans 31 years, Dr. Moors has been consulting the energy industry's biggest players, including six of the world's Top 10 oil companies and the leading natural gas producers throughout Russia, the Caspian Basin, the Persian Gulf and North Africa. His experiences – as well as his unrivaled industry access – are without peer. For access to Dr. Moors' top stock recommendations for the publicly traded companies that are poised to dominate these new clean-energy markets, get his Energy Advantage advisory service by clicking here.]

Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk assessment, and emerging market economic development. He serves as an advisor to many U.S. governors and foreign governments. Kent details his latest global travels in his free Oil & Energy Investor e-letter. He makes specific investment recommendations in his newsletter, the Energy Advantage. For more active investors, he issues shorter-term trades in his Energy Inner Circle.

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